House prices rebound, Nationwide | Fortnight ahead | BDEV, GLE, COST
Barratt Developments (BDEV, 412p, £4,023m mkt cap)
UK’s biggest housebuilder by volume. Portfolio sale. Future sale for private rental agreed of 604 homes to Citra Living Properties, a wholly owned subsidiary of Lloyds Banking Group for total cash consideration of £168m. In excess of 500 are expected to be legally completed and transferred during FY (Jun) 24 and the remainder in FY 25, reflecting the variations in both site development stages and build scheduling. The current gross asset value of the 604 homes included within this transaction is £72.4m. Since forming the strategic partnership in 2021, Barratt has agreed the sale of some 502 homes on individual sites to Citra. According to Barratt, “The single-family dwelling segment of the private rental sector [PRS] continues to grow strongly and presents an opportunity for us to both diversify our revenues against the current challenging market backdrop and develop communities which encompass all forms of housing tenure”.
MJ Gleeson (GLE, 358p, £209m)
Low-cost housebuilder, focused on north of England, and strategic land enabler, focused on south. Portfolio sale. Contract entered into with global investment firm Carlyle and Gatehouse Investment Management, a market leading single-family housing investment manager, for the sale of 288 homes across multiple developments, of which up to 66 homes are expected to be completed in the financial year ending FY (Jun) 23 with the balance in FY 24. Consideration for the sale totals £50.4m payable in cash upon completion of each home, save for a small retention. The proceeds will be reinvested into the business for working capital purposes. This transaction strengthens Gleeson Homes’ forward order book and allows the business to expedite the opening of new sites. According to Gleeson, “This transaction represents a compelling opportunity in the context of the current uncertain market environment and we are delighted to be working with Carlyle and Gatehouse, who value the quality of our product and the communities which we create”.
Guidance: “The company will issue its next scheduled trading update, in respect of the year ending 30 June 2023, on 7 July 2023 and expects to confirm that it will deliver results for FY 23 in line with expectations”.
Viewpoint: With two sizeable transactions announced at once, this highlights the growing institutional appetite for single-family PRS and an acceptance among housebuilders to de-risk part of their landbanks. Expect further announcements from rivals.
Costain Group (COST, 45p, £125m)
UK construction and infrastructure services group. Pension funding. The group has reached a new agreement with pension fund trustees. The new contribution plan to the Costain Pension Scheme runs from 1 July 2023 to 31 March 2027 and is for a payment of £3.3m pa, which will increase in line with CPI each 1 April. This replaces the previous contribution plan to the scheme, which from April 2023 had increased to an annual payment of £12.0m. The Scheme funding position on a Technical Provisions basis as at 31 March 2022 was a deficit of £25.1m, a funding level of around 97%. An assessment of the Scheme funding position will be carried out each 31 March and, if the funding level on a Technical Provisions basis is more than 101%, contributions will stop from the following 1 July to 30 June. If the funding level falls below 101% at the following 31 March, contributions will resume for the next year starting 1 July to 30 June at the agreed new level. In addition, the ‘dividend parity’ arrangement will continue until 31 March 2027. Under this arrangement, an additional matching contribution (the excess of the total dividend above the scheme contribution) to the scheme will be made when the total of the interim and final dividends for a financial year paid to the shareholders of Costain Group are greater than the contributions paid into the Scheme in the previous Scheme financial year, which runs from 1 April to 31 March. If the funding level is above 101% as at 31 March, then no contributions will be payable in respect of dividend parity for the following year.
Housing prices rose during June, by 0.1% M/M (seasonally-adjusted; +0.6% non-SA) to £262,239, bringing the Y/Y decline to 3.5% (non-SA), from -3.4% in May, according to Nationwide. The increase, unexpectedly according to Nationwide, represents a cumulative non-SA decline of 4.2% from the August 2022 peak of £273,751 – immediately prior to the mini-budget. The drop from then to the March 2023 low of £257,122 was 6.1% and the latest reading is 2.0% higher since then. The building society argues: “Longer term borrowing costs have risen to levels similar to those prevailing in the wake of the mini-Budget last year, but this has yet to have the same negative impact on sentiment. For example, the number of mortgage applications has not yet declined [see below] and indicators of consumer confidence have continued to improve, though they remain below long run averages.
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